Home buyers needing financing may have hit a pay wall as mortgage rates rise more than one percentage point in just eight weeks.
“We are at a turning point in the market. Offer activity is slowing,” said Patrick Veling, president and CEO of Real Data Strategies. “Homebuyers, especially in the $1.1 million to $1.4 million price range, are saying we’re mad as hell and we’re not going to take it anymore.” Let’s say someone put 20% down on a $500,000 starter home a year ago. The principal and interest payment on $400,000 at the Freddie Mac rate of 3.18% a year ago would have been $1,725. Add $125 per month for insurance and 1.25% for property taxes, and we arrive at a total payment of $2,371.
While Tozer believes the economy is very strong, he points to Fed Chairman Paul Volker raising short-term rates to 20%, with mortgage rates rising to 15%. Volker purposely pushed the U.S. into a recession to reduce demand.For-sale home listings are down 25% from a year ago in Los Angeles County and down 34% in Orange County, according to Steven Thomas of Reports on Housing. At the same time, supply is up in the Inland Empire, rising 31% in San Bernardino County and 4% in Riverside County.
Mortgage lenders are pretty shaken these days. On top of a dearth of homebuyer applicants, refinance volume is down 60% from a year ago, according to the Mortgage Bankers Association.“Assuming rates stay around where they are, the supply constraints will keep prices from falling,” said Veling. He sees home appreciation dropping from 19% to 8% or 9%.
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